Uber is taking a big risk by ordering 24,000 cars from Volvo

Despite recent setbacks, Uber is making another big bet on driverless technology.

Timothy B. Lee – Nov 20, 2017 11:16 am | 99

Credit: Uber

Uber has signed a deal with Volvo for 24,000 XC90 sport-utility vehicles for delivery between 2019 and 2021. With this deal—worth about $1 billion—Uber is essentially betting the company on a self-driving future.

It’s a big, risky bet for Uber, which lost $2.8 billion in 2016 and is locked in a legal battle with Waymo over self-driving technology that could cost it more than $1 billion.

When Recode’s Johana Bhuiyan talked to company insiders about Uber’s self-driving car project in March, she found that “many think it is at a technological standstill and plagued by significant internal tension.” Around the same time, Uber temporarily suspended public testing of its driverless cars after one of its cars collided with another car and flipped over on its side. The company says another driver was at fault in the incident, and it has since resumed testing.

Facing so many big challenges, you might expect Uber to try to conserve cash as it tries to reach profitability. But the company isn’t known for playing it safe. And Uber has long viewed self-driving cars as an existential threat.

“If we are not tied for first, then the person who is in first, or the entity that’s in first, then rolls out a ride-sharing network that is far cheaper or far higher-quality than Uber’s, then Uber is no longer a thing,” Uber’s then-CEO Travis Kalanick told Business Insider last year.

The new deal builds on a $300 million deal Uber and Volvo signed last year to develop self-driving technology. Under the new deal signed on Monday, Uber will accept conventional XC90s from Volvo and then add the company’s proprietary sensors and software to convert them into fully driverless models.

Uber’s strategy contrasts with Waymo and Lyft

The size of the deal is a striking contrast to deals made by Waymo, a company that is likely to be one of Uber’s biggest competitors in the self-driving car market. Technologically speaking, Waymo seems to be a couple of years ahead of the rest of the industry—it started testing fully driverless cars earlier this month.

But whereas Uber now has a deal for 24,000 cars, Waymo has so far only announced plans to buy 600 cars from its automotive partner, Fiat Chrysler. And even outfitting those 600 cars with sensors has proven a slow process.

It’s possible that Uber is better prepared—or will be by 2019—to put hundreds of cars on the road every month. But it’s also possible that Uber is getting overconfident—that its self-driving car technology isn’t ready by 2019, or it doesn’t have the infrastructure required to retrofit all those cars and get them into service.

Uber’s deal also puts the company on a very different trajectory than Uber’s main American competitor, Lyft. While Uber is trying to build its own network of fully driverless cars, Lyft is positioning itself as an open marketplace where other companies can offer their driverless cars to the public.

Lyft is betting that other companies will figure out how to build self-driving cars but won’t have the time, expertise, or capital required to build their own Lyft-style ride-hailing networks. By contrast, Uber seems to fear that a company like Waymo could build both driverless cars and a ride-hailing app, shutting companies like Uber and Lyft out of the marketplace altogether.

Correction: This article originally stated that Waymo only had 50 Chrysler minivans on the road in September, but Waymo tells Ars that this is wrong. There were about 50 cars operating in the Phoenix area, but others were operating in other cities and on private test tracks.